1,000 words for the EU budget 2014-20

If the scheduled extraordinary European Council in November does not agree on a framework for the 2014-2020 budget or if the European Parliament denies its approval, the future of the EU will be held hostage to an unstable and unmanageable environment, argues Ivailo Kalfin.

IvailoKalfin is Member of the European Parliament from Bulgaria and co-raporteurfor the Multi-Annual Financial Framework (MFF), the EU's long-term budget 2014-2020. He is affiliated to the Socialists & Democrats political group and Vice Chair of the Budget Committee.

"The EU budget amounts to 1% of the economy. It is about 50 times smaller than the combined MS national budgets. In macroeconomic terms its influence over the EU economy is negligible.

And still, it is attracting a lot of attention; I would say tensions, and the negotiations over the next long term EU expenditure are considered some of the most complicated and difficult in the EU. Why?

It is obvious that a sufficient expenditure frame for the EU is a statement for the Union vitality, for its political and economic ambitions, for its weight in the world. The agreement on the EU budget is an important signal for the Union's reputation.

If the scheduled extraordinary European Council in November does not agree on the framework of the 2020 budget or the European Parliament denies its approval, the future of the EU will be held hostage to an unstable and unmanageable environment.

Secondly, the adoption of the seven-year financial framework provides predictability on the main priorities and the level of funding for citizens, for businesses and for the markets. In these turbulent times it is good to know where things are going.

Third, the EU money is usually used as multiplier to attract significant additional resources - both public and private. This means that the economic impact of the EU budget exceeds several times its size.

For example in my home country, Bulgaria, the generated amounts are about 5-6% of GDP annually, which is hardly a negligible proportion.

The MFF for 2014-2020 is being discussed under extraordinary circumstances: stagnating economies, fragile budgets, instability of the banking sector, efforts to create a sound institutional basis for the euro currency.

In this atmosphere more than ever every euro spent in Europe is a matter of scrutiny. The richest EU members are insisting upon replicating the national austerity measures on the European budget, while the others are threatening that such approach will pin them in the EU periphery forever.

It is true that currently nearly 80% of the EU budget is financed by the national budgets contributions. These are significant amounts even for larger European economies.

For example, Denmark's share is comparable to the country's defence expenditure, and for the UK's it's the sixth largest expenditure of its national budget.

On the other hand, despite the encasement of the EU integration, in the last 20 years the common budget of the Union has decreased by around 20%, compared to the size of the EU economy unlike the national government expenditures. This is a clear shift of budgetary powers from EU to national level.

To ignore the fact that the world has changed will be foolish and irresponsible. The EU and the way it finances its policies has to change significantly. And this is already happening. For example no one is anymore surprised by the request of some countries to bind the EU funds with the macro-economic policy of an individual state.

If the budget deficit is higher, the debt increases or eventually the country does not comply with the provisions of Olli Rehn - funds should be blocked. It is difficult to argue against the EC proposal to discard national gross EU funding envelops for stricter rules to spend this money for achieving the EU goals.

Some are going even further suggesting the creation of Treasury of Europe to blow up the comfort of the easy EU money and to monitor closer which costs can be cut and which programmes should be unchained.

What we will probably see in the next EU budget is a gradual decrease of the cohesion and agriculture portfolios in exchange for better funding for research, innovation and the competitiveness of enterprises. And this is fine.

The EU budget needs radical changes. So profound that no one knows how far they can go. But the direction is clear - to common European taxes that should determine expenditure targets - if you have financial needs, you should ask the taxpayers.

This would effectively create a European "Treasury" to go along with the creation of the position of Mr or Mrs Euro. Such steps should also be accompanied by at least at first of issuing common debt or of establishment of redemption fund to stimulate demand and create jobs during the difficult times, but in any case it would need a concept for increasing the EU budget.

It should also be said that the EU budget is and should be in the future a growth instrument. 94% of its size returns and is managed by the authorities in the EU capitals and regions or is used for fueling the EU external relations. The EU budget creates synergies and added value that cannot be matched by national expenditures.

The EU budget is also unique tool for strengthening the Union's economy and shaping its profile and competitive power. Particularly in times of economic crisis, the EU budget is the only instrument, able to attract investments in public infrastructure or to increase the economy's competitiveness on sustainable basis in most of the states and regions.

The EU's ambitions to build sustainable, innovative and growing economy, to create jobs and to increase the living standards if its citizens, can be accomplished only by allowing the necessary recourses for that. The credibility of both the nations and the EU depends on their ability to deliver on the political decisions taken.

The unprecedented youth unemployment, the increasing poverty and the educational and social challenges across EU, require a bold, immediate and continuous action both at national and EU levels.

If this is not done, the next generation of Europe will be much less bound to the European values of peace, democracy and human dignity, economic prosperity and social welfare. Or at least fewer solutions are going to be searched at European level.